California

Supreme Court Revives Challenge to California Milk Regulations

The lawsuits claim that the pricing system discriminates against out-of-state dairies.

The U.S. Supreme Court on Monday revived lawsuits filed by out-of-state dairy farmers who claim California's complex milk-pricing system discriminates against them.

The court ruled 8 to 1 that a federal law passed by Congress as part of the 1996 Farm Bill didn't exempt the state's pricing system from claims that it violates the Commerce Clause of the U.S. Constitution and interferes with interstate commerce. The court also unanimously allowed individual dairy farmers to separately pursue their own claims.

A number of Nevada dairy farms, including Hillside Dairy, a unit of Dallas-based Dean Foods Co., had sued the California Department of Food and Agriculture to strike down a rule that they must pay into a state-regulated pool that distributes proceeds to farmers for their milk.

They claim that the pricing system unfairly discriminates against out-of-state producers by paying them less for their milk than California dairy farmers'.

For The Record Los Angeles Times Wednesday June 11, 2003 Home Edition Main News Part A Page 2 National Desk 1 inches; 38 words Type of Material: Correction Milk pricing -- Hillside Dairy, a farm mentioned in a Tuesday Business section article about lawsuits challenging California's milk pricing system, was misidentified as a unit of Dallas-based Dean Foods Co. It is a supplier to Dean Foods.

"Out-of-state producers now get less than they used to get," said Charles "Chip" English of law firm Thelen Reid & Priest in Washington, which represented the dairies in the case. Besides, he said, California should have "no power to project its economic policies outside the state of California to Nevada."

The Supreme Court decision did not address the merits of those arguments but did say that the 1996 federal law that upheld California's milk standards "does not clearly express an intent to insulate California's pricing and pooling laws from a Commerce Clause challenge," according to the court opinion by Justice John Paul Stevens.

The case will be remanded to the U.S. 9th Circuit Court of Appeals in San Francisco, which had upheld the exemption from Commerce Clause scrutiny, and sent back to federal district court in Sacramento, where the original case was heard.

The suit was filed after the state decided in 1997 to require contributions into the pricing pool on some out-of-state milk purchases. Before then, processors didn't have to pay into the pool when they bought milk from out-of-state dairy farms, making it often cheaper to buy milk from dairies outside of California.

State officials said the pricing system does not discriminate against out-of-state farmers and point to the 225% increase in the volume of milk being trucked across state lines since that time.

If the system was "impeding interstate commerce we don't think you'd be seeing that sort of increased insertion into the marketplace by out-of-state producers," said Steve Lyle, a Department of Food and Agriculture spokesman.

However, dairies in states near California, mainly Nevada and Arizona, account for just 3.5% of all fluid milk sold in the state, according to state data.

Many of these out-of-state farms counter that if they were not subject to these state rules there would be more competition and lower milk prices in California, a point with which consumer advocates disagree.

"Our position has always been that the retail price consumers pay and the farm price are not connected," said Elisa Odabashian, senior policy analyst for Consumers Union. "There is a widening gap between what farmers make for their milk and what retailers charge for it."